Timing of certain subsidies caused last month's spike, say economists

Inflation spiked last month to reach its highest level in almost three years.

Economists said this was due more to the timing of certain subsidies than stronger economic growth, though they also noted that cost pressures in the economy could continue picking up over the rest of the year.

The consumer price index - the main measure of inflation - rose 1.4 per cent last month from a year ago, the fastest rate of growth since July 2014.

This was close to economist expectations of 1.3 per cent and followed a 0.4 per cent uptick in April.

REBATES

Last month's sharp increase was due largely to base effects associated with the timing of rebates for service and conservancy charges disbursed to HDB residents. The rebates, distributed in May last year, were given out in April this year.

This means housing maintenance and repair costs were higher in May this year compared with the same month a year earlier.

Other costs also rose last month. Electricity and gas increased by a faster 19.1 per cent in May compared with the 18.7 per cent increase in April.

This was due to a larger hike in gas tariffs on the back of the recovery in global oil prices over the past several months, according to a joint statement from the Trade and Industry Ministry and Monetary Authority of Singapore.

Overall food inflation also picked up, rising to 1.5 per cent in May from 1.3 per cent in April, driven by a larger increase in the prices of non-cooked food items.

The cost of prepared meals rose at a similar pace in both months.

These increases were offset by a slowdown in services inflation, which fell to 1.4 per cent in May from 1.7 per cent in April, mainly reflecting a decline in holiday expenses and air fares.

They added: "Inflation is likely to rise in the coming months to reflect a combination of unfavourable base effects and upward adjustments in administered prices as opposed to stronger demand conditions in the economy."

Core inflation - which strips out accommodation and private road transport costs to better gauge everyday expenses - was 1.6 per cent in May, down slightly from April's 1.7 per cent.

DBS senior economist Irvin Seah feels that "cost pressures are building up and this could accelerate when the water price hike kicks in July".